“100 Year Flood Event”
Gene’s post on media reporting of the flooding is typical: Gene makes a confident claim, rob chimes in to meekly disagree, Gene bites rob’s head off, and we all end up wiser.
First and probably most important: The “100 year flood event” stuff is defined for a specific region. So over the country as a whole, we’d expect a bunch of “100 year flood events” every year.
(The odds of someone picking the winning lotto numbers make it way way less than a “once in a lifetime” event. And yet every couple of months, somebody wins the lotto. Thing must be rigged!)
But more interesting are the following distinctions:
==> A “100 year flood event” is defined as an event that has a 1% probability of happening in a given year.
==> This is NOT THE SAME THING as saying that we expect a flood of such magnitude to occur one time per century.
==> It IS equivalent to saying that the expected number of times of such a flood occurring per century is 1.
To understand the above statements, consider someone rolling a fair die. If we ask, “What’s the expected value of the roll?” we can calculate it by doing the probability of an outcome times the value of that outcome, and summing over all possible outcomes. So for our fair die, the expected value is 3.5.
Thus, the “expected value of the die roll” is 3.5.
But suppose I ask you, “Hey, do you expect the next die roll to turn up as 3.5?” then the answer is clearly no, since that is literally impossible. We can be quite sure the next die roll will NOT be 3.5.
The expected value of the die roll is 3.5, even though we do not expect the value of the die roll to be 3.5.
The Fun Stuff on Liberty Classroom
I was checking the Student Dashboard for my History of Economic Thought classes on Tom Woods’ Liberty Classroom, and came across a fun question prompted by my lecture on utility and welfare theory. Just to show you the romping good time, I’ll reproduce the question and answer below. Sign up today and join the fun!
Q: OK, I give up. How do you move from Pareto suboptimality to Pareto optimality, and still make some people worse off? I keep trying to figure this out and it just makes my head spin.
A: Heh it’s a fun one, isn’t it? It’s easier to do on a blackboard, but here goes:
Picture a 2-person, 2-good economy. It’s Xavier and Yolinda, and they have apples and bananas. There is no production, just a total of 10 apples and 10 bananas, that can be split between them.
Assume their preferences are such that each person always wants more of either good, but also prefers variety.
Now suppose Xavier has 10 apples and 10 bananas, while Yolinda has 0 apples and 0 bananas. This is Pareto optimal. You can’t make Xavier happier because he has all the goods already. And if you make Yolinda happier, you necessarily hurt Xavier. So since it’s impossible to make one person better off without hurting the other, the original allocation is Pareto optimal.
Now consider a different allocation, where Xavier start with 9 apples and 1 banana, while Yolinda has 1 apple and 9 bananas. It’s plausible that this is *not* Pareto optimal, because I said they like variety. E.g. we can imagine their preferences are such that if Xavier trades away 4 of his starting apples in exchange for 4 bananas from Yolinda, that they are both getting more utility (or end up with a preferable combination of goods).
So, I hope you find it plausible that this 2nd allocation I’ve described–where Xavier starts with 9 apples and 1 banana, while Yolinda starts with 1 apple and 9 bananas–is Pareto suboptimal.
Now, imagine we move from this 2nd allocation to the 1st allocation (the one where Xavier has everything). We’ve moved from a Pareto suboptimal to a Pareto optimal allocation, and yet in doing so we made Yolinda worse off, because now she has nothing.
Go ahead, admit it. You thought you’d have to go to Steve Landsburg’s blog to get mathematical econ like this. You thought I’d just say, “GOVERNMENT BAD. APPLES GOOD.”
Contra Krugman on Hurricane Harvey
In episode 102 we talk about climate change and Houston zoning. Even though Krugman himself didn’t bring it up, Tom and I review the case against the case against (sic) “price gouging.”
In fact, I liked our exchange so much that I clipped it into a stand-alone YouTube segment, which you can share with all of your friends and co-workers:
“Pauly are you OK?”
Unfortunately these guys missed the deadline (which was mostly our fault because we should’ve given better guidance), but this was a very creative submission to our Contra Cruise contest.
Jesus, the Magnificent Leader of Men
(I am picking the title here as a reference to this.)
I believe I’ve mentioned this episode before, but for some reason I thought of it again over the weekend and decided to repeat it. Consider this famous passage that occurred after the Last Supper:
30 And when they had sung a hymn, they went out to the Mount of Olives. 31 Then Jesus said to them, “You will all fall away because of me this night. For it is written, ‘I will strike the shepherd, and the sheep of the flock will be scattered.’32 But after I am raised up, I will go before you to Galilee.” 33 Peter answered him, “Though they all fall away because of you, I will never fall away.” 34 Jesus said to him, “Truly, I tell you, this very night, before the rooster crows, you will deny me three times.” 35 Peter said to him, “Even if I must die with you, I will not deny you!” And all the disciples said the same.
Of course, Jesus’ prediction comes true. Even though Peter had the courage to follow (at a distance) Jesus after He had been taken into custody (while the other apostles fled), nonetheless Peter eventually denied knowing Jesus when he was confronted about it:
54 Then they seized him and led him away, bringing him into the high priest’s house, and Peter was following at a distance. 55 And when they had kindled a fire in the middle of the courtyard and sat down together, Peter sat down among them. 56 Then a servant girl, seeing him as he sat in the light and looking closely at him, said, “This man also was with him.” 57 But he denied it, saying, “Woman, I do not know him.” 58 And a little later someone else saw him and said, “You also are one of them.” But Peter said, “Man, I am not.” 59 And after an interval of about an hour still another insisted, saying, “Certainly this man also was with him, for he too is a Galilean.” 60 But Peter said, “Man, I do not know what you are talking about.” And immediately, while he was still speaking, the rooster crowed. 61 And the Lord turned and looked at Peter. And Peter remembered the saying of the Lord, how he had said to him, “Before the rooster crows today, you will deny me three times.”62 And he went out and wept bitterly.
For all of us who have remained silent when scoffers mocked things we hold dear–even in cases, Jesus–this should pierce our hearts.
But what I want to focus on is not Peter’s failure, but rather Jesus’ rehabilitation of him. For context, Jesus is making Peter the Rock upon which His church will rest. In just a short while, Peter is going to deliver a single sermon that wins thousands for Christ.
How is this possible? Peter is broken after his denial of His Lord. How can he possibly forgive himself for this failure and move on, serving the Lord?
Because Jesus fixes it, that’s how. After His resurrection but before His ascension, Jesus has this conversation with Peter:
15 When they had finished breakfast, Jesus said to Simon Peter, “Simon, son of John, do you love me more than these?” He said to him, “Yes, Lord; you know that I love you.” He said to him, “Feed my lambs.” 16 He said to him a second time,“Simon, son of John, do you love me?” He said to him, “Yes, Lord; you know that I love you.” He said to him, “Tend my sheep.” 17 He said to him the third time,“Simon, son of John, do you love me?” Peter was grieved because he said to him the third time, “Do you love me?” and he said to him, “Lord, you know everything; you know that I love you.” Jesus said to him, “Feed my sheep. 18 Truly, truly, I say to you, when you were young, you used to dress yourself and walk wherever you wanted, but when you are old, you will stretch out your hands, and another will dress you and carry you where you do not want to go.” 19 (This he said to show by what kind of death he was to glorify God.) And after saying this he said to him,“Follow me.”
In isolation, this passage seems odd, and no doubt a critic could say, “Aha! Yet again, the God of the Bible is really insecure and needs to be constantly adored by humans.”
But of course, what’s really happening here is that Jesus is giving Peter the opportunity to affirm Him three times, to make up for the triple denial. Obviously this conversation isn’t for Jesus’ ego, it’s for Peter’s rehabilitation.
After all, Jesus has a job for him to do.
Murphy on Dave Smith’s “Part of the Problem”
This was a very enjoyable interview. Here’s the link to the “recent interviews” page; let me know if you can figure out how to link directly to my interview. We start out talking about standard Austrian economics stuff, but then we turn to the current political scene.
I think this one stood out for me because deep down, I always thought I should be a standup comedian, but I was too much of a chicken. (Dave Smith is a professional comedian, in addition to now being a podcaster who talks politics/economics a lot.)
Here are some highlights:
==> 22:30: Dave asks me about the criticism that Austrians don’t care about empirical evidence.
==> 26:30 I explain how the pop David Friedman is more Misesian (in terms of method) than Freakonomics.
==> 38:40 Dave makes the same point about Milton Friedman on Donahue.
==> 31:15 Dave on being Bob Murphy. “What’s it like?”
==> 35:25 I criticize Krugman. (!)
==> 36:50 Dave asks me about the h8ers.
==> 37:20 I steal Scott Adams’ line about dog whistles.
==> 45:30 Dave says he talks to alt-right people to try to turn them.
==> 49:50 I remember Ron Paul’s Rudy Giuiliani moment.
A Very Interesting Public Opinion Poll
I think I first saw this linked at SlateStarCodex, so HT2 him, but this recent NPR / PBS News Hour / Marist survey of 1,125 adults from across the nation has some interesting results.
First, on the question of what to do with Confederate statues, among African Americans 44% said they should “remain as a historical symbol,” while 40% said they “should be removed because they are offensive to some people.” (The margin in favor of “remain” was much higher among whites and Latinos.) Since everybody except Jim Buchanan is in favor of democracy, I guess this means…?
What’s really bizarre is that on the question asking if the person agrees with the beliefs of the “white supremacy movement”:
==> 3% of whites said they “Mostly agree” while 88% said they “Mostly disagree.”
==> 4% of African Americans said they “Mostly agree” while 90% said they “Mostly disagree.”
==> 7% of Latinos said they “Mostly agree” while 76% said they “Mostly disagree.”
The above results have made the rounds, with chortling bloggers understandably announcing, “More blacks and Hispanics agree with white supremacists than white people do.”
I’m not sure what to make of these results–I’m guessing there might be some trolling and misunderstanding of the question–but I think it’s safe to say that America is not on the verge of going skinhead. Even if you say, “Well it’s because the white white (sic) supremacists were afraid to admit it,” OK that’s part of the point. Everybody knows this is socially unacceptable in our culture.
If Nobody Gets My Analogies, Whose Fault Is It?
This post is really only directed at those of you who are faithful readers of Scott Sumner. If you don’t follow him, obviously you can feel free to chime in, but I don’t expect you to get the point here.
Anyway, Scott recently criticized David Glasner’s definition of “currency manipulation” because it relied on the intentions of the policymakers, and (according to Scott) we as economists can’t be mind readers. According to Scott, any concept that requires an analyst to get inside the mind of the government official is nonsense.
I thought this was a very surprising move for Scott to take. So I left this comment:
Scott,
On this post, I’m not trolling you. (In contrast, I *am* going to troll you a bit on your super-neutrality post.)
David is making an obvious point. If a government is intentionally lowering the real exchange value of its currency in order to gain an export advantage, then it is engaging in currency manipulation. A la your point about Bastiat, we don’t need to *care*, but the concept is coherent.
To push back against that, you write:
Surely if a concept of currency manipulation has any coherent meaning, it cannot depend on the motive of the policymakers in a particular country? We aren’t mind readers.
Well, what about this claim?
“Surely if a concept of tight money has any coherent meaning, it cannot depend on the mental framework of the policymakers. We aren’t mind readers.”
Do you agree with that? For example, if Fed officials take some actions during the day and we see interest rates go up, surely that’s all we need to know if we’re going to classify it as “tight” or “loose” money, right? Somebody might suggest that it depends what the motivations were–maybe the Fed officials didn’t even care about interest rates, and were just trying to get NGDP growth to be according to their subjective target–but you would say that’s nonsense because we can’t read minds?
I’m truly not being facetious here, Scott. If you had asked me (before I saw your current post here about Glasner) which monetary economist stressed the importance of evaluating policy in terms of the intentions of the policymakers, I honestly would have said, “Scott Sumner has made me appreciate this more than anybody else.”
Then, to be kind of a wiseguy but also to isolate just how silly Scott’s stance was, I left another comment:
David Glasner: In order to classify Dick Cheney as an attempted murderer, we need to know that he intended to shoot his hunting buddy.
Scott Sumner: What are we, mind readers? I can’t believe the legal concept of “homicide” involves intentions. This is nutty. What if a tree fell over and killed his buddy, would the tree be a murderer now too?
In my mind, I won the internet. Sure, Scott might push back and say my cutesy analogy leaves stuff out, but surely he would get what my point was, right?
Nope, not at all. Scott had no idea what I was talking about, and this other guy accused me of making a freshman error regarding monetary policy.
If somebody can tell me, “Ah, OK Bob I get what you were trying to do, but here’s why nobody else did…” I am all ears. I honestly get baffled when stuff like this happens. To be clear, I’m not expecting people to say, “Drat! We would’ve gotten away with it too, if it hadn’t been for your awesome analogy,” but I expect people to get the point I’m making. That’s the whole rationale for using analogies.
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